Why Is Fixing American Health Care So Difficult?

Almost all the problems with the American health care system boil down to two questions. How do we create a system that ensures that all citizens, and perhaps residents, have access to health insurance? And how do we contain the huge cost increases?

Of course, behind these questions lies the question of how to reform the nation's largest industry that serves and richly rewards many powerful interests.

Reforming Insurance?

The insurance question is problematic for two main reasons. First, only a small percentage of the population is sick and almost all the health care dollars get spent on it. So, in order to pay for the health care of all those sick people -- and the costs are well beyond the means of the individuals concerned or those of their families -- there has to be some transfer of money from the healthier and wealthier.

The only effective way to make this transfer is to forcibly place everybody in the same insurance pool, and then fund that pool by some type of tax or quasi-compulsory premium contributions. Otherwise, any attempt to provide insurance to people who are sick means, by definition, that people who are well are going to pay more for their insurance than they'll need or use.
So, by definition, voluntary health insurance pools are very unstable, as healthy people will leave for cheaper alternatives. Insurers know this, and they exclude sick people from pools using a method called medical underwriting.

For most of the last 60 years, we have dealt partially with this problem by letting employers act as natural insurance groups, and have papered over some of the cracks by letting the government take care of those more likely to get sick -- the elderly (via the Medicare program) and some of the poor (via Medicaid).

However, over the last few decades, employers have found that the cost of health care has become a significant drain on their profits. Meanwhile, the share of total employee compensation required to provide health insurance, especially for the lower paid, is so great that employers have essentially stopped providing it.

For example, the cost of family premiums in some states is close to the income of minimum wage workers. Most employers are highly unlikely to want to double their labor costs by offering health benefits, and most employees, of course, can't afford it.

Consequently, of those who are uninsured, which is, in fact, a highly fluid population, some 75 percent are members of working families. This number would be much greater had the Medicaid program not expanded dramatically both under Bush 1 and Clinton. And, of course, every one in Medicaid is paid for by the taxpayers, and everyone who is uninsured and shows up at a health care facility also has their care paid for. But only after an excruciating dance between health care providers, taxpayers and the uninsured themselves, all of whom are trying to avoid footing the bill.

America is a rich country, and we can continue to handle the inefficiencies of our insurance system if we so choose, despite the medical and financial costs incurred by the uninsured causes and the rest of us. More accurately, this system will continue in place until, politically, we choose to end it. But that will require substantial changes in the way the powerful insurance industry operates, which would almost certainly significantly reduce its profits. You can see why that reform has proved so hard over the years.

Reforming Care Delivery?

Meanwhile, the health care provider industry is currently awash with new ideas about improving the quality and cost-effectiveness of the care it delivers. It is well-known within academic health care circles that somewhere between one-third and two-thirds of all care delivered is inefficient and unnecessary.

A huge body of research conducted at Dartmouth under John Wennberg shows conclusively that patients with similar conditions receive significantly different treatment depending on which area of the country they live in and which doctors they see. Even worse, it appears that the more that gets done to patients, the worse are their outcomes. But, of course, no physician or hospital believes that it is the one providing the inefficient or unnecessary care -- it's those other guys who are at fault.

Meanwhile, the medical industrial complex continues to invent more and more high-tech procedures, devices and pharmaceuticals -- all of which come at a higher and higher cost. And why not, as the people who write the checks keep paying.

There have been rapid positive advances in many areas of medical care as a consequence of all this new technology, such as dramatic improvements in the treatment of heart disease, but there has been essentially no systematic analysis of which new interventions are good value for the money. So, for instance, the introduction of drug-eluting stents in the last decade has seen the creation of a multibillion-dollar market for the devices' manufacturers, and even more for the associated procedures.

There has been essentially no assessment of whether this money was better spent than if we had just continued to do coronary-artery bypass grafts for the more advanced cases of heart disease. Recent evidence from teams at Stanford and Duke suggests that the answer might be no, as patients tend to need the CABG eventually anyway.

This is, in fact, the typical pattern of how the health care industry works. It does something new, and employers, taxpayers and, increasingly, consumers, pick up the tab in a fairly unquestioning way. At the margins, employers stop offering insurance and poorer consumers go without, but because health care is such an emotionally important part of most people's lives, it's very hard for consumers and their employers to say "no."

Consequently, even though people drop out, more and more money goes into the system, which increasingly entrenches the interests of those who benefit -- those providing services and the insurers who take a big cut off the top.

Attempts by providers to improve the cost-effectiveness, quality and safety of the care being delivered are done more from a sense of moral obligation than from self-interest. Intermountain Healthcare in Utah, which has probably made greater strides than any other organization in the nation to improve the quality of care it delivers, found that when it reduced the number of hospital-acquired infections among its patients, its profits went down. This story has been well-known in health care for several years, yet only very baby steps have been taken by some of the most sophisticated employers -- and, as yet, barely any by the Medicare program -- to change the "do more, get more" incentives under which America's health care providers operate.

Is There an End Game?

So, the problem is that, although we have a decent understanding of the steps we need to take to fix both the insurance system and the delivery system, it's like the old joke: How many psychiatrists are needed to change a light bulb? Only one, but the light bulb has to want to change.

There are no real incentives for any of the actors within the health care system to change, and the demands from outsiders -- whether they're employers, taxpayers or voters -- for change will have to be very strong to overcome the entrenched interests of the medical-industrial complex.

It is likely, though, that these demands will eventually get much louder. Most employers are increasingly pushing costs onto their employees and clearly want to get out of the business of managing health care -- ironically, this is called consumer-directed health care.

The baby boomers are entering their 50s and 60s, just when their health needs increase and the availability of insurance from their employers decreases. Consumers don't know much or care much about the problems with care quality or cost-effectiveness, but they are very aware of the disastrous financial consequences of needing care when they have no insurance. So, baby boomer demands for some kind of universal, guaranteed health insurance system will become a growing political force as they begin to realize that the uninsured are people who look just like them.

There is no realistic way to create a universal insurance system without the government taking even greater control over the system. Unless we somehow make the deficit disappear, there won't be a flood of extra money available. It's therefore likely that the techniques to improve care quality and costs, which various health care providers are adopting, will then become mandatory.

And, of course, this will mean, eventually, if not a reduction in the amount of money available to the system, then at least a slowing in the amount it will increase. And that will cause significant change, probably for the better, in how we organize care delivery toward a system that is organized around effective and preventive treatment of chronic illness, rather than episodic and costly intervention in acute cases.

But because the powerful actors in the health care system understand the concept that government control eventually means relatively less money and less profit, it's likely they will continue to fight this type of universal insurance reform all the way.

It will, therefore, require a powerful president and a Congress with strong public opinion behind it to undertake such a reform. Given the current political divide in the country, we will likely see a continued stalemate in the health care system for a good number of years ahead.

Matthew Holt is a health care consultant based in San Francisco and the author of The Health Care Blog